Author: Amitabh Dubey

Stunned by the 0-3 verdict in the Hindi heartland, many BJP supporters are hoping that Prime Minister Narendra Modi’s charisma will counter the anti-incumbency that led to the party’s defeat in Chhattisgarh, Madhya Pradesh and Rajasthan. Some point to the slogan “Modi tujhse bair nahi, Vasundhara teri khair nahi” as a sign that voters were angry with state leaders rather than with the PM, and that this setback was a one-off.

This is somewhat optimistic. There was undeniably a national element to the state campaigns. Many of the issues that afflicted the incumbent BJP governments were national – agricultural distress, demonetisation impact, GST. Congress President Rahul Gandhi campaigned at length on the alleged failings of the Modi government, and Modi also spent a lot of time criticising the Congress Party.

That said, issues and candidates do differ between state and national elections, so we can’t rule out the possibility of some voters in those states voting differently in the coming general election. However recent history is not encouraging for the BJP, at least when it comes to Chhattisgarh, Madhya Pradesh and Rajasthan.

Consider the average swing for the winning and losing parties in these three states over the past 15 years.

The party that wins a state election on average gains 7-9 percentage points in the following general election. The party that loses also gains 1-2 points. The overall share of the vote going to smaller parties and independents usually shrinks between state and national elections, benefitting national parties.

If this pattern holds, the INC can expect to increase its lead over the BJP in these states in the coming general election. And even if there is a Modi effect on some voters, the state winner effect could neutralise it.

Some might argue that Modi is sui generis, and that his personal charisma will suffice to see the BJP through, especially in the Hindi belt. The historical record suggests otherwise. Consider 2013-14, when the INC was at a low point and dealing with serious anti-incumbency. In Chhattisgarh, Madhya Pradesh and Rajasthan, the party lost only 1-3 percentage points between the 2013 state election and the 2014 general election.

This means that very few INC voters in the state election switched to the BJP – or at least those losses were offset by incoming voters who had previously voted for other parties or independents. The INC lost such few votes at arguably its lowest point that it seems unlikely that it will slide when it is resurgent, and when the BJP faces anti-incumbency after five years in office.

The BJP could still jump ahead of the INC, as occurred early in the Atal Bihari Vajpayee era. The former won Madhya Pradesh (which included Chhattisgarh then) decisively in the February 1998 and September 1999 general elections, even though in between it had lost the November 1998 state election to the INC. Again, the INC held on to its vote share but the floating vote moved towards the BJP.

The problem is that the momentum is now going the other way. The BJP could in theory reverse its losses in the Hindi belt, but it won’t be easy.

The year 2022 appears to have acquired mythical status among some Modi supporters. It’s when “New India” arrives in the form of a majority in the Rajya Sabha. Unfortunately that’s as likely to happen as the bullet train.

The Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) currently has 90 seats in the Rajya Sabha, some thirty short of a majority. If we assume that all current state governments are re-elected between 2018 and 2019 — a very good scenario for the BJP — the Rajya Sabha looks as follows in 2020 (assuming no state legislators cross-vote):

The NDA is still around 20 seats short of the halfway mark, leaving it dependent on non-aligned regional parties to muster the majority it needs to pass bills in the upper house. If we boldly extend the assumption that state governments are re-elected in 2020 and 2021, the Rajya Sabha looks like this in 2022:

The NDA could still corral votes from smaller parties and pass bills via simple majority, but remains well short of the two-thirds mark needed to pass a constitutional amendment. This should reassure those who worry about the BJP’s goal of transforming India into a “Hindu Rashtra”, even if the party wins the 2019 election.

For argument’s sake, assume that Indian politics returns to a more “normal” pattern that is still favourable to the BJP. This means that the BJP loses in Madhya Pradesh and Rajasthan (2018), wins more narrowly in Maharashtra and Haryana (2019), the DMK wins Tamil Nadu (2021), INC gains in Assam (2021) and the BJP is narrowly re-elected in Uttar Pradesh (2022). Here’s what the 2022 Rajya Sabha looks like:

In this scenario the NDA is 20 seats short of the halfway mark until 2024. That means that even if Modi is re-elected in 2019, control of both houses will remain a distant dream for his entire term, as will Hindu Rashtra. Hopefully the bullet train will be running by then.

How can Modi be beaten in 2019? Following the Bharatiya Janata Party’s byelection reverses last week, the consensus in the commentariat clearly leans towards a grand alliance (or mahagathbandhan) of opposition parties of the sort that humbled BJP in Bihar in 2015 and in three recent Uttar Pradesh parliamentary byelections. The subtext is that an “arrogant” Indian National Congress should be more generous towards regional parties, possibly even putting forward a non-Congress candidate as prime minister to cement a grand alliance.

But is it valid to extrapolate from parliamentary bypolls to national politics? Gilles Verniers and Rajkamal Singh argue not, saying “bypolls do not have a predictive value for the following state or general election” and that they reflect mostly local factors, such as the interplay among influential political families in Kairana. There does seem to be some truth to this — the United Progressive Alliance won 6 of 12 bypolls in 2012 and 2013 and the simple average of its vote rose 2 percentage points vis-à-vis the 2009 general election. Yet it was routed in 2014.

If you look closely at parliamentary – as opposed to state – byelections though (see charts below), there does seem to be a correlation in terms of vote swing between how the UPA did in the by-elections and in the subsequent general election. The simple average of the vote swing away from the UPA in the seats that had byelections is similar to the national swing in 2014, implying that they may have been representative of the national picture.

It is striking how poorly the BJP has done in comparison with the UPA, winning only one of the 13 seats that had parliamentary byelections in 2017 and 2018. It seems difficult to imagine the BJP reversing all of the ground it has ceded in those seats between now and 2019. Rajasthan, Uttar Pradesh and Maharashtra are all states that were central to Modi’s 2014 victory. It might be challenging for the BJP to make up these losses with evident gains in eastern states such as West Bengal. There is reason for the BJP to worry.

Do the byelection results support the proposition that the opposition cannot win in 2019 without a mahagathbandhan? Not really. Of the 15 seats that just had elections, only four were won by an opposition grand alliance. Non-BJP parties won three seats fighting alone and another five were won by longstanding state alliances in Bihar (RJD-Congress) and Maharashtra (Congress-NCP).

The case for a mahagathbandhan is obviously strongest in Uttar Pradesh. The BJP remains ahead of the Samajwadi Party and Bahujan Samaj Party individually by quite a margin. It suffered a major vote erosion only in Phulpur; in Gorakhpur and in Kairana it slipped but still polled strongly in the high 40s.

That doesn’t mean that a grand alliance is the answer everywhere. The BJP and its allies rule 12 of India’s 20 biggest states, and the INC is in a position to defeat it – either singly or with its existing allies – in all but Uttar Pradesh. The one ally that could make a difference is the BSP whose vote base overlaps with that of the Congress, as in Madhya Pradesh where an alliance seems to be in the works. In a close election, the addition of the BSP vote could make the difference between victory and defeat in Chhattisgarh, Madhya Pradesh and Rajasthan, states that contributed 62 of 65 seats to the BJP in 2014 and will hold elections in a few months.

Whether Mayawati is amenable to a broader alliance, and on what terms, remains to be seen. It is often said that the BSP suffers because allied parties do not transfer their votes even as they they benefit from the BSP’s vote bank. However this does not appear to be the case in the BSP’s biggest alliances. In 1993 and 1996, the BSP allied with the SP and the INC respectively in the Uttar Pradesh state elections. The BSP’s vote share in the seats it contested was only about percentage point lower than its partners’, suggesting that a smooth transfer of votes occurred.

To sum up, the BJP is facing a serious erosion of votes that is making the 2019 election much more competitive than in 2014. But with the exception of Uttar Pradesh and Karnataka, the results suggest that the INC should be judicious about ceding ground to potential allies rather than rushing into a mahagathbandhan. In 2004 and 2009, the INC became the single-largest party by winning 35% and 47% of the 417 and 440 seats it had contested respectively. If the party cedes more space to a mahagathbandhan and ends up contesting, say, 300 seats, it will be difficult for it to come close to the 150 mark needed to block the BJP’s claims and to form a stable coalition.

In a 31 Mar 2018 Indian Express op-ed, PM advisor Surjit Bhalla accused critics of the government of purveying “fake news” in an effort to create a “political atmosphere helpful to the (weak) challenger”. He contended that “liberal elites” are trying to “change people’s perceptions”, and quoted Joseph Goebbels: “if you incessantly repeat a lie, the lie will become reality”. Bhalla, who writes op-eds and presumably tries to shape people’s perceptions, frequently labels those he disagrees with as Goebbelsian (here, here and here).

Bhalla’s op-ed starts with the self-evident point that the Bharatiya Janata Party continues to dominate Indian politics despite recent setbacks. He then moves on to a dubious comparison between the results of parliamentary by-elections that involve lakhs of voters with Rajya Sabha elections in which a handful of legislator votes can shift individual seats, and ends with the insinuation that critics of the government are somehow tools of Cambridge Analytica (clearly failing to understand how such firms work).

The piece is remarkable only as a demonstration of how much baseless blah it requires to make a case for this government’s economic policies.

Some claim that he had promised large-scale privatisation of the economy; since that hasn’t happened, Modi has failed. But Air-India is being privatised, again not thought conceivable, let alone possible.

This is an odd logic. If some were awaiting large-scale privatisation, why would they consider Air India’s sale to be inconceivable? It’s usually at the top of anyone’s list of firms to be privatised, not least because there’s no obvious justification for the government to own an airline. And it’s not as if the government hasn’t dropped plenty of hints in the past.

Just look at the PNB scam; but that started in the scam-scam years of the UPA. That doesn’t negate the fact that it continued under Modi. True. But what if the BJP takes the bold (and sensible) decision to get at the root cause of banking scams — begin to unravel Indira Gandhi’s decision to nationalise the banks — and large scale corruption?

What if, indeed. The fact is that the Finance Ministry has moved rather slowly on public sector bank reform. The Bank Boards Bureau (BBB) set up to improve bank governance has stated that “most of BBB’s recommendations have not received due attention from the government” (keep in mind the BBB could also be covering its backside in the wake of the PNB scam).

The point: wake us up when bank denationalisation actually happens.

The reality is uncertain because there has not been a national survey on jobs since 2011/12, the last time the NSSO conducted a nationally representative survey on employment… The average rate of job growth was 2.8 per cent in the BJP years 1999-2004. This is what the UPA inherited; average annual job growth between 2004 and 2011 was only 0.8 per cent per annum… When the reality is known (NSSO Employment survey for 2017/18), it is unlikely to show a rate of growth below the 0.8 per cent UPA rate.

Now we’ve entered dreamland. Surveys show that job growth has probably worsened, be they from the CMIE , the Labour Bureau or the RBI’s 26-industry KLEMS database which shows that employment “shrank by 0.1% in financial year 2015-16 and by 0.2% in 2014-15”. Remember this was when India’s GDP growth was relatively high and had yet to experience the disruptions of demonetisation and the GST.

The real shocker would be if the 2017-18 NSSO survey showed an annualised employment growth rate higher than 0.8%, pakoras or no pakoras.

The beginning of reforms in agriculture, major steps towards the delivery of benefits to the poor via the banking system, identification made possible via Aadhaar.

You have to love “beginnings” four years in. And what do we have to show? Coating urea with neem, distributing soil health cards and setting up an electronic National Agricultural Market cannot substitute for reforms to bypass politically-connected agricultural intermediaries. The government has yet to deal with spiralling subsidies, overbearing laws like the Essential Commodities Act and low investment levels in agriculture. And Bhalla is silent on the biggest irony: the Modi government has signalled that it will aggressively raise farm minimum support prices, something he regularly lambasted the UPA for.

As for the “delivery of benefits to the poor” via banking and Aadhaar, the Modi government inherited India’s entire payments infrastructure, 650 million Aadhaar enrollments, direct benefits transfer in LPG and 250 million BSBDA accounts that preceded the Jan Dhan Yojana. The NDA has done a commendable job on financial inclusion, but how come it wasn’t “reform” when the UPA did it?

The chorus emphasises leakages in delivery to the poor; about some poor families not getting their food rations because they did not have an Aadhaar card. The next time your friendly anti-reform chorus reminds you of this tragedy — yes, it is tragic — ask them what the leakage was in the food delivery system in the non-Aadhaar Jan Dhan era. That leakage was 50 per cent — yes, 50 per cent — of the food meant to be delivered to ration shops, and therefore the poor, disappeared into thin air. Actually, an air thick with corruption. That leakage is likely to be below 10 per cent today; if not, let the chorus provide us with facts on the magnitude of leakage today.

The air is thick with unsupported data, and it’s left to the poor “chorus” to verify such speculation. As it happens, PDS losses were closer to (a still high) 30% in 2011-12, with much of the leakage emanating from the volatile Above Poverty Line (APL) quota where recipients lacked a clear sense of their exact entitlement.

But assuming that leakages have dropped as Bhalla says, it remains to be seen how much Aadhaar accounts for this fall and how much the deletion of the APL category – mandated by the UPA’s 2013 National Food Security Act that Bhalla so vocally opposed – does. APL losses were an estimated 60-70% versus 20-30% in the Below Poverty Line category. More importantly, it seems inconsistent to rail against “fake news” while offering seemingly made up numbers.

GDP growth is on an accelerating path to the 7-8 per cent range; and inflation is some 500 basis points — yes 5 percentage points — below the 9 per cent level bequeathed by UPA II.

Here are the facts: the economy is currently growing no faster than it was four years ago. The annual GDP growth rate bequeathed by the UPA in 2013-14 was 6.6%. The Ministry of Statistics projects 2017-18 GDP growth at, um, 6.6%. Reassuringly, quarterly numbers show that growth has accelerated, from 5.7% year-on-year in Apr-Jun 2017 to 7.2% in Oct-Dec 2017. But then we need a higher baseline: GDP growth in the UPA’s final quarter of Apr-Jun 2014 — remember the first NDA budget was presented on 10 Jul 2014 — was 7.5% year-on-year.

Not too impressive.

As for inflation, no question that there has been a decline since the UPA2 days. Exogenous factors like global food and fuel prices explain much of this fall, but monetary policy also played a role. Here’s what one economist had to say on the topic:

No matter what the criteria, inflation has dropped, and dropped by a large magnitude between September 2013 and June 2016… While the government deserves some credit, the fact remains that this extraordinary inflation decline observed in India would not have been possible without Rajan’s leadership and his (correct) single-minded obsession with returning inflation to normal in India.

That economist praising the former RBI Governor (and Manmohan Singh appointee) Raghuram Rajan is of course Bhalla himself. This is not to say that the UPA’s 2010-13 spendthrift ways didn’t contribute to inflation. But from a purely policy lens, the decline in inflation had several causes, some of which were actually implemented by a chastened UPA.

The main point is this: there are many things that the Modi government has done right, be it setting up a robust process to resolve stressed assets or opening coal mining to private investment. But it has made several unforced errors, viz. demonetisation and a hasty GST rollout, and the results are showing. And if this defence is the best the PM’s advisor has to offer, no wonder there’s a rising “chorus” against the government’s policies.

Despite the frenzy of distractions since, by now you have likely heard the news that demonetisation failed. As NDTV’s Sreenivasan Jain put it in Truth vs Hype, the news sent the government into “a spiral of deflection, of moving goalposts and of swamping us with cherry-picked data”. He’s being very polite, avoiding the accurate and efficient word: “lies”.

Take this blatant example from the 31 Aug 2017 Ministry of Finance release titled “Demonetisation immensely beneficial to Indian Economy and People”:

The Government had expected all the SBNs to come back to the Banking system to become effectively usable currency.

Oh yeah? Here are four examples that show otherwise:

In his 8 Nov speech, Prime Minister Narendra Modi stated: “The 500 and 1,000 rupee notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper.”

Two days later, Finance Minister Arun Jaitley told News18 that, of the 14 lakh crore notes outstanding, “some would certainly get extinguished” because “people who have used cash for crime purposes are not foolhardy enough to try and risk and bring the cash back into the system”.

On 10 Dec, Attorney General Mukul Rohtagi informed the Supreme Court that “the government had expected ₹10 or 11 lakh crore to be returned out of a total of ₹15 lakh crore of ₹500 and ₹1,000 notes that were demonetised”.

One month later, on 10 Jan, NITI Aayog member Bibek Debroy predicted that some 10% of the notes in circulation would not return.

Some other big holes in the government’s defence of demonetisation are now widely acknowledged. That the proportion of fake notes in the system is small and remains so, and that the cash crunch failed to impede the activities of militants in Kashmir and in Naxalite areas (here, here and here). That demonetisation has brought in fewer taxpayers than the government claims.

So what’s left to be said?

Quite a bit, it turns out. The big fibs are defended by a ring of smaller lies and half-truths, to the point that honesty seems absent in the entire defence of demonetisation. It’s one thing for politicians to spin or massage the truth, quite another for an official government statement to do so.

Let’s look at the claims in that document, one by one.

A significant portion of SBNs deposited could possibly be representing unexplained/black money… Since November 2016 and until the end of May 2017, a total of Rs 17,526 crore has been found as undisclosed income and Rs 1003 Crore has been seized.

Duh, that’s obviously what happened. It is possible that the income tax department’s Operation Clean Money exposes a good proportion of that money in the coming months, and thereby contributes to the original goals of demonetisation. But the evidence so far is unimpressive.

₹17,256 crore sounds like a lot, but is actually well within historical averages, even if we exclude the unusually large 2013-14 haul – which we really shouldn’t since demonetisation was supposed to be this bold, never-seen-before move (see chart below). The best-case scenario is that future revelations await, the worst-case scenario is that wily citizens successfully convert black money to white.

Takeaway: Wake us up when you have something solid.

The total assets under management (AUM) of Mutual funds (MFs) rose by 54% by the end of June 2017 from March 2016.

This is simply ridiculous as a defence of demonetisation. The bulk of this asset growth happened prior to demonetisation, between Apr and Oct 2016, when it rose 32% (according Association of Mutual Funds in India data). Following demonetisation, mutual funds assets grew a more subdued 16% between Nov 2016 and Jun 2017. But 54% sounds so much cooler than 16%, doesn’t it?

Takeaway: They do take us for fools.

Thanks to demonetization led efforts, zero balance accounts under PMJDY declined from 76.81 % in September 2014 to 21.41% in August 2017.

More bunkum, I’m afraid. The proportion of zero balance Jan Dhan Yojana accounts had already fallen to 24.1% by 26 Sep 2016, several weeks prior to the demonetisation announcement. In fact, the reduction from 24.1% to 21.4% that occurred after demonetisation is the slowest since 2014 (see chart below), quite the opposite of what the Finance Ministry is implying.

Takeaway: Still taking us for fools.

As part of fillip to digitalization, about 52.4 crore unique Aadhaar numbers have been linked to 73.62 crore accounts in India. As a result, every month now, about 7 crore successful payments are made by the poor using their Aadhaar identification. The government now makes direct transfer of Rs. 74,000 crore to the financial accounts of 35 crore beneficiaries annually, at more than Rs. 6,000 crore per month.

Congratulations, but this has nothing to do with demonetisation. It’s to do with Aadhaar and PMJDY, which were ticking along nicely long before demonetisation, and would have continued to do that in its absence.

Takeaway: Irrelevant.

Digital payments have increased by 56% from 71.27 crore transactions in October 2016 to 111.45 crore transaction till the end of May, 2017.

This implies steady growth in digital transactions, when in fact the Ministry of Electronics and Information Technology – clearly more honest than the Finance Ministry – admitted in the Lok Sabha on 2 Aug that “digital transactions increased during November-December 2016 and have plateaued thereafter”. In other words, people shifted to digital payments when they had no cash, got accustomed to it to some extent, and then reverted to their old habits. This is clear in the chart below — and recent National Payments Corporation of India data show no increase in later months either.

So we sacrificed millions of jobs and two percentage points of economic growth for a temporary bump in the growth rate of digital payments.

Takeaway: If only the spin would also plateau.

Some people had expected a very large shock to economic growth on account of demonetisation. Their expectations have been belied.

I don’t know what the Finance Ministry is smoking, but it’s obviously potent stuff (see below). To be fair, the 5.7% GDP number came out the day after the demonetisation defence, but the 6.1% growth in Q4/2016-17 was already down 1.8 percentage points from 7.9% in Q4/2015-16. The only expectations belied here are the Finance Ministry’s.

It’s not easy to defend a failing flagship policy, especially when the central premise is shaky. When the foundation is built on wishful thinking, the supporting ‘evidence’ is bound to stray into fictional realms too. Let’s hope the Finance Ministry doesn’t have to rely on such storytelling skills in the future.

In a Forbes magazine article that caused a happy stir in right-wing social media, Harry G. Broadman argued that Prime Minister Narendra Modi’s “governing prowess” had “boosted India’s GDP growth” and “produced sizeable increases of inflows of foreign direct investment (FDI)”. He stated that the reforms implemented by Modi in his first three years were “sizeable, though not huge”, but still impressive in the context of a “messy” system of democracy, and “against the backdrop of decades of reform inertia and inaction by successive governments in Delhi”. Furthermore, Modi’s reforms “are destined to make lasting, rather than transitory, changes in the structure of the Indian economy”.

It sounded a lot like the claims that pro-Modi commentators used to make until demonetisation and farm loan waivers broke their spirit. Take a dash of genuine policy accomplishments, toss in some tweaked (or, worse, simply renamed) pre-Modi initiatives that have carried on, add some hyperbole, underplay the blunders and voila! you have a Strong Reformist Government.

But don’t take my word for it, let’s evaluate the list of claims presented to prove that a “cunning and effective” Modi is transforming India in an unprecedented way.

Broadman starts with FDI, arguing that Modi has contributed not only to a big jump in FDI flows to India (which is plausible) but that India under Modi has equalled China, the great economic story of our time. That’s because India’s FDI in 2015 (as a share of GDP) rose to 2.1%, approaching China’s 2.3%. Furthermore, “between 2005 and 2015 (obviously a period that in part predates Modi)”, he writes, India’s FDI (as a share of GDP) doubled, while China’s halved.

It’s unclear why India deserves the credit for a slowing of FDI flows to China, and the World Bank chart (below) is self-explanatory. FDI to India has picked up, but is still in line with the historical trend. But don’t let that stop anyone overselling this accomplishment.

Broadman then goes on to list eight “notable” reforms, which we analyse below, starting with those that are, in fact, correct:

A revised law on bankruptcy, which will generate freer flows of capital and the flexibility for them to be invested in their highest value in use, thus promoting a more robust, competitive Indian market both for new business start-ups as well as for forcing stale companies who cannot make ‘a go of it’ to close shop and sell their assets.

Few people realise that India’s investment rate is currently at a 14-year low, and a major reason is the inability of some of India’s biggest companies to pay off their debts, which has hurt banks’ ability to lend. The 2016 Insolvency and Bankruptcy Code is aimed at reversing this by speeding up the resolution of bad loans. This will be a complex and drawn-out process, but putting this law in place was necessary, and counts as a win for the Modi government.

The introduction of a nationwide sales tax, which will integrate an otherwise excessively complicated disparate system of different state and federal taxes, a reform that will not only increase tax collections but also help reduce interstate barriers to trade and distortions arising from gaming where within the country purchases should be consummated.

There’s a heated debate underway over how much India’s complex Goods and Services Tax (GST) will benefit the economy, and many will recall that Prime Minister Modi was instrumental in blocking the United Progressive Alliance (UPA)’s original GST proposal as Gujarat chief minister. But hypocrisy aside, the Modi government has shepherded the GST into existence, helping transform India into something close to a single market, and gets the credit for this major tax reform.

Elimination of subsidies for diesel fuel, which will help plug a fiscal hole in government revenues, and even more important create disincentives for using an energy source that adds to, rather than diminishes, pollution and greenhouse gases.

It is true that the Modi government formally decontrolled diesel prices on 18 Oct 2014. But all the heavy lifting had been done by the UPA, which on 17 Jan 2013 permitted retailers to increase the price of diesel by 50 paise/month. As a result, the gap between the actual cost of supplying diesel and its subsidised retail price dropped from ₹9.21/litre to ₹2.80/litre between Jan 2013 and May 2014 (according to Ministry of Petroleum data). It continued under the Modi government until a collapse in global oil prices starting Aug 2014 eliminated the price gap entirely. By the time the Modi government decontrolled diesel prices, oil prices had crashed to the point that decontrol produced a diesel price cut (rather than a hike) of ₹3.37/litre, a freebie no politician could refuse.

If anyone deserves credit here, it is Manmohan Singh.

Removing regulations that forced companies to repetitively renew their business licenses at an artificially high frequency simply to generate revenues to be collected by local bureaucrats.

This one is mystifying. India abolished licensing for most industries on 26 Jul 1991, and the list of industries that require a licence has declined to four: aerospace & defence, industrial explosives, hazardous chemicals and tobacco products. The process of renewing licenses for this handful of industries has indeed been simplified — most notably in defence, where the duration of a licence has extended from three to 15 years, but this hardly qualifies as major reform.

Relaxing rules that reserved specific sectors to be the province of only small and medium sized enterprises even if large firms could produce the goods or deliver the services at lower cost and create economies of scale.

This one is just wrong. The number of items reserved for small-scale enterprises fell from 836 in 1995 to 20 in 2015 under successive governments, and the Modi government’s sole contribution here was to de-reserve the last 20 items. The perils of Googling your way to economic analysis?

Using transparent and competitive auctions for allocating access to the telecom spectrum.

There’s no doubt that the Modi government held telecom spectrum auctions in Mar 2015 and Oct 2016, and is planning one more in 2017. But there’s nothing new here. Even the UPA conducted a “transparent and competitive” auction of 3G and 4G spectrum in May-Jun 2010, before its reputation had been tarnished by what the Supreme Court termed an “arbitrary” and “capricious” 2G spectrum allocation in 2008. Following the Supreme Court’s cancellation of that allocation, the UPA held 2G auctions in Nov 2012, Mar 2013 and Feb 2014. Essentially, the Supreme Court has ensured that no government can allocate resources without holding an auction, and Modi’s being PM is frankly incidental here.

Opening investment in the railway network to majority foreign ownership, thus allowing India to tap into new sources of capital to build out its infrastructure and help the country integrate into a unified economic space to create economies of scale in both manufacturing and agriculture and thus enhance its international competitiveness.

Sounds promising, one problem: foreign investors are still substantially barred from “investment in the railway network”, which remains the preserve of Indian Railways. Where they are permitted is in railway infrastructure, specifically suburban corridors under public-private partnership (PPP), high speed rail, freight corridors, railway electrification, signalling, freight and passenger terminals, rail projects in industrial parks and mass rapid transport systems. This is a solid set of investment avenues, although there was already foreign participation in mass rapid transport and freight corridors before Modi took office. More importantly, any investment in railways depends crucially on the decisions made by a cautious railways bureaucracy. Raising FDI limits may be helpful, but they were never the main barrier to private participation in India’s rail story.

This could count some day as a win for the Modi government, but it’s still very much a work-in-progress.

Permitting foreign investors to participate in construction projects that otherwise were reserved for only domestic service providers, thus generating opportunities for joint ventures and other businesses to incorporate world-class construction techniques and materials.

Another misfire, it would seem. FDI has been freely allowed in construction for more than a decade, and accounted for 7% of total FDI flows between Apr 2000 and Mar 2017. However, stagnation in the sector has slowed FDI flows in recent years, and the Modi government has eased minimum area restrictions, investment lock-in periods and the like (here and here), winning approval from the real estate industry. But the reforms haven’t yet worked: FDI flows to the sector in the last two years were US$218 million, one-twelfth (I kid you not) of the US$2.6 billion that came in during the UPA’s final two years. These reforms may be desirable, but they are far from transformational.

It turns out that only two of the eight reforms proposed as evidence of Modi’s reformist chops add up; five are simply wrong, and one seems too minor to count. To top it all, Broadman concludes with a familiar defence of demonetisation, repeating the widely-known benefits of going cashless without any real examination of the heavy costs of demonetisation, something even Modi supporters now acknowledge (here and, ahem, here).

An Economic Times (ET) report on 26 Apr credited the newly elected Bharatiya Janata Party government in Uttar Pradesh (UP) for a dramatic turnaround in the state’s electricity situation. The news report claimed that UP had “shed blackouts within a month of the BJP taking over the reins, moving from perennially running short of electricity to ‘zero-shortage’ in April”.

Soon enough, Power Minister Piyush Goyal shared the article with an approving tweet:

It is certainly true that UP’s energy deficit (measured in million units) hit a record low in Mar 2017 of 0.2%, compared to a much bigger gap of 10.5% a year ago in Mar 2016. However, it would be ridiculous to give the new government credit for this improvement: the UP election results were declared on 11 Mar, and a new government sworn in on 19 Mar.

The ET article cited unpublished data from the National Load Despatch Centre, which oversees the national electricity grid, to show that this improvement continued into April, but we’ll have to wait for numbers from the Central Electricity Authority to get a clearer idea.

But regardless of how April turns out, the ET claim completely elides the fact that power shortages in UP, and indeed all over India, have strongly diminished over the past year, as this chart vividly shows:

India’s energy deficit fell sharply in the first half of 2016, and particularly so in UP. UP’s deficit (shown here as a 3-month moving average) converged with north India’s around Sep 2016, and by Dec 2016 had fallen below that level. This was unanticipated: the Central Electricity Authority’s 2016-17 Load Generation Balance Report had anticipated that UP would have an energy deficit of 6.5%, but it turned out to be only 1.7%. Since the BJP ran the state only 13 of those 365 days, the decline in UP’s power shortage had little to do with it, Goyal’s celebration notwithstanding.

Even so, fewer blackouts and less load shedding can only be good news, right?

Yes and no. As much as India’s power capacity has risen in recent years, it is more weak growth in demand that accounts for the disappearance of India’s once-chronic electricity shortages (see chart below):

The chart above shows a steady decline in the growth of energy demand since 2014-15, both in UP and in India. This doesn’t have to be a bad thing; many economies display lower energy intensity as they grow, and technological advances could also play a role. Consider the UJALA scheme to promote energy-efficient LED bulbs: government claims likely overstate the energy savings by a factor of two (see Why you shouldn’t be bedazzled by Modi’s LED claims), but their adoption probably shaved a percentage point off 2016-17 energy demand. However, if the decline in demand reflects industrial weakness, and the lingering effects of demonetization, that would be an unhealthy sign. And the rapid decline in the growth rate of energy demand in the past two years is worrying.

Either way, one thing is clear: the ending of UP’s power shortage is part of a broader structural story that has little to do with the new UP state government. And no amount of PR claims dressed up as news reports can change this reality.

Prime Minister Narendra Modi is proud of the government’s scheme to distribute millions of low-cost, energy efficient LED bulbs. And why not: Modi told the Lok Sabha on 7 Feb that the distribution of 21 crore LED bulbs had helped households save ₹11,000 crore in electricity bills. Even the name bears his unmistakable imprint: “Unnat Jeevan by Affordable LED for All”, whose acronym is UJALA, Hindi for illumination.

Unfortunately, these numbers are mostly fiction.

First, a brief history. As with many other schemes that Modi has hogged the credit for, UJALA was designed and piloted by the UPA under the much less catchy name DELP (standing for — I kid you not — “Demand Side Management-based Efficient Lighting Programme”). DELP followed in the footsteps of the semi-successful Bachat Lamp Yojana that had resulted in the sale of 2.9 crore CFL bulbs at a price of ₹15 each and, the government contends, boosted demand nationwide by driving market prices down. In 2013, the UPA decided to apply this strategy to pricier but even more energy-efficient LED bulbs; while the first scheme was subsidised by carbon credits, DELP would be paid for by power distribution utilities out of the savings generated by shifting from incandescent to LED bulbs.

A Nov 2013 pilot project in Puducherry led to the distribution of 6.5 lakh LED bulbs to 2.5 lakh households at a subsidised price of ₹10 each. The government’s bulk order of 6 lakh LED bulbs caused the price to fall from ₹800 per bulb in 2012 ₹Rs 310, proof that the concept worked. As the chart below shows, successive orders caused bigger and bigger price drops, falling most recently (and controversially) to ₹38.

There’s no question that the Modi government has taken UJALA forward, scaling it up with sales of 23 crore LED bulbs (as on 21 Apr). But if you think this was in any way a brainchild of Modi’s, or that Power Minister Piyush Goyal did much more than implement a roadmap already laid out for him, think again.

Still, how does it matter who came up with the idea, as long as it benefits the nation, right? The problem is that the claim of financial and energy savings is based on dodgy maths.

The government’s claims are based on a Sep 2015 PricewaterhouseCoopers (PwC) study that it sponsored, that looked at LED usage during pilot projects in Puducherry and in four Andhra Pradesh districts. The report stated that, once you factor in defective and unused bulbs, each LED bulb would produce an average saving of 134 kilowatt hours a year. Which translates into the savings Modi claimed in the Lok Sabha.

Multiply this by 77 crore LED bulbs, the planned total under UJALA, and you have a saving of 20,100 megawatts of peak load demand, equivalent to five ultra-mega power projects costing US$15-20 billion (₹97,000-1,29,000 crore), for only ₹3-4,000 crore. What’s not to like?

The issue is, the PwC study made overly strong assumptions to attain these savings. It assumed that all 77 crore 7-watt LED bulbs would replace 60-watt incandescent bulbs (which is fine) and, more problematically, that each would be used for an average of 8 hours/day, 320 days in a year, equal to 2,560 hours/year. Now this is perfectly reasonable if you live in Leh, India’s northernmost district, and every day is the winter solstice when you get 10 hours of proper daylight, and everyone sleeps only six hours; then you might conceivably leave all your LED lights on for 8 hours. But, seriously?

Indeed, a 2008 World Bank study calculated that a light bulb will be used 913 hours/year. Even the state-owned Energy Efficiency Services Ltd (EESL) that actually runs UJALA assumes that a light bulb is used for 3.5 hours/day, 300 days/year, for a total of 1,050 hours. These more conservative figures translate into savings that are only 36-41% of what Modi claimed in the Lok Sabha.

More reason to take a dim view of the Modi government’s claims.

Update 25 Apr

The state-owned EESL, which oversees LED bulb distribution, took issue with this analysis in a lengthy rebuttal carried on BloombergQuint on 23 Apr. EESL disagreed that LED bulb usage should be taken as 3.5 hours/day rather than 8 hours/day, pointing out that the former figure was recommended by the United Nations Framework Convention on Climate Change for carbon credits when actual usage data are unavailable.

EESL stated that a nationwide survey of 35 DISCOMs, and a study by PwC in Andhra Pradesh, showed that LED bulbs are used for 5-6 hours/day, and that “a conservative estimate of 5 hours has been taken for calculation”. Furthermore, it said that an Andhra Pradesh government monitoring survey carried out by “two leading educational institutions” found that actual usage was even higher at 8 hours/day.

Since EESL has not provided copies of these reports, it is difficult to independently verify these claims. For one, it is erroneous for EESL to state that “5 hours has been taken for calculation” when the original PwC report cited, and available on the government’s UJALA website, clearly states on Table 24 that bulbs are assumed to be operating 8 hours/day, 320 days/year.

It was also widely reported on 21 Feb 2016 that the Andhra Pradesh government-sponsored study of the districts of Guntur, Anantapur, Srikakulam and West Godavari (the same ones covered by PwC), by Andhra University in Vishakhapatnam and the Hyderabad-based Engineering Staff College of India, found that the actual average energy saving per LED bulb was 73.7 kilowatt hours (kWh), considerably lower than the 133.6 kWh that PwC projected. Assuming that both reports used the same methodology, this suggests that the actual LED bulb savings are 55 percent of what the government claims.

After the original analysis was published, Twitter user Somnath Mukherjee pointed out that the PwC study assumed an electricity price of ₹3.50/kWh, which may have further inflated the projected financial savings from LED adoption.

@dubeyamitabh there's an assumption of power prices too, which for avg is higher than the marginal assumed.

Consider the electricity tariffs offered by the Uttar Gujarat Vij Company Ltd in northern Gujarat. Depending on whether you are a rural, urban or “below poverty line” user, your first slab of 50 kWh/month of electricity costs somewhere between ₹1.50 and ₹3.50 per kWh; with nighttime usage between 10 pm and 6 am attracting a charge of ₹2.60/kWh. The true cost of the electricity used by LED bulbs, in northern Gujarat at least, is likely less than ₹3/kWh for the first slab in which the bulk of households will fall, rather than the assumed ₹3.50/kWh. This suggests that savings may in fact be inflated at two compounding levels: (1) the calculation of average use of a bulb and (2) the rupee savings per hour of usage.

To sum up, these inconsistencies need to be clarified, and I look forward to EESL releasing the methodology and findings of the various studies mentioned above. Until then, there is still reason to believe that the government’s projection of savings from LED bulb adoption is based on dodgy maths.

A look at “Make in India”, published as an oped in the Hindustan Times:

How does one judge Make in India? Recent news that foreign direct investment (FDI) flowing to defence in 2016-17 was an absurd trickle of ₹61,000 (or perhaps $61,000, the Ministry of Defence didn’t specify) seems to have not caused much of a ripple. Nor has the fact that FDI in defence in the past three years has been – this isn’t a typo either – $174,000, notwithstanding several liberalisation announcements.

Defence is just one, albeit telling, sector, with its own peculiarities such as the much-delayed “strategic partners” policy and a single buyer – the Ministry of Defence. But it is an exaggerated version of the story playing out across the high-profile Make in India campaign, which promises to generate millions of jobs in India by increasing the share of manufacturing to 25% of gross domestic product (GDP).

India has seen strong FDI flows in the last couple of years, but most of this is going to ride-sharing services like Uber and Ola and e-commerce providers like Amazon and Flipkart. FDI in manufacturing hit a high of US$9.6 billion in 2014-15 (slightly better than the previous 2011-12 record), but actually fell the next year to US$8.4 billion. A major pickup in 2016-17 seems unlikely.

Despite rising costs in China, India has made little headway into becoming a global manufacturing alternative, particularly at the low end that generates the most jobs. Textiles and clothing jobs from China are moving to Myanmar, Cambodia and, yes, Bangladesh, while Vietnam, Thailand and Indonesia are gaining in electronics production. India has become a global small-car hub over the last couple of decades, but this relatively high-end segment is not a massive job-creator.

Things are slowly changing. India has a large domestic market to leverage, and the two dedicated freight rail corridors it is now building (connecting Delhi with Mumbai and Kolkata) should contribute to a major reduction in logistics costs in a few years. But, for now, southeast Asia is eating India’s lunch.

There are limits to what a government can do. India’s can’t, and arguably shouldn’t, try to emulate China’s labour suppression that kept manufacturing costs down, which Myanmar, for instance, could. This government isn’t even pushing the smaller measures forcefully enough. The focus on “ease of doing business” reforms is commendable, but only four of 31 states have implemented meaningful labour reform in the last three years. Even if the opposition doesn’t want to cooperate, the BJP could certainly prod its 12 other states to follow suit.

And let’s not forget the self-goals. Demonetisation might have contributed to the BJP’s political victory in Uttar Pradesh, but it has shredded the informal sector. Large companies in sectors from automobiles to consumer goods have laid off thousands of workers, as have their suppliers. Demonetisation may have delayed the goals of Make in India by months, if not years.

It’s not a bad thing for India’s aspirations to exceed its political grasp, but a trending social media hashtag won’t generate jobs. India has always done its bit of manufacturing, and the true test of Make in India lies in whether its GDP share meaningfully rises, not in photo-ops.

There’s nothing like the word Mahagathbandhan (Grand Alliance) to make even the most boosterish Bharatiya Janata Party (BJP) supporter sweat a little. And it’s not just because of what happened in Bihar in 2015, when an alliance of the Rashtriya Janata Dal, Janata Dal (United) and Indian National Congress (INC) inflicted a defeat on the BJP. Ever since 1977, dominant parties – the INC until the 1980s, the BJP now – have been vulnerable to a united opposition challenge. Which is why Nitish Kumar and Lalu Prasad Yadav have both urged the INC to engineer a national-level grand alliance to break the BJP’s current ascendance.

Uttar Pradesh (UP) is of course the lynchpin of the BJP’s national dominance, having contributed 71 of its 282 Lok Sabha seats in 2014. That is why its recent state election victory was such good news for the party, since it places the BJP on a strong footing for the 2019 election, only two years away now.

The best way to stop the BJP juggernaut, at this point, seems to be a Mahagathbandhan in UP. After the Emergency, an opposition alliance forced the INC’s Lok Sabha seats in UP down from 73 (of 85) in 1971 to exactly zero in 1977. Its state assembly tally fell from 215 in 1974 to 47 in 1977. Little more than a decade later, another grand alliance knocked the INC down from 83 Lok Sabha seats in 1984 to 15 in 1989. In the state assembly, the INC dropped from 269 seats in 1985 to 94 in 1989. Grand alliances in UP have proved effective in countering dominant political parties.

Like the previous instances, a UP grand alliance might not be more than a stopgap. The Bahujan Samaj Party (BSP) and Samajwadi Party (SP) have a history of animosity that won’t be easy to overcome, though the INC could play mediator between former rivals as it did in Bihar.

So what impact might a Mahagathbandhan have had on the just completed state elections? Here’s what the new UP state assembly looks like:

A simple addition exercise shows that the BJP and its allies exceeded the combined vote share of the SP, BSP and INC in 115 state assembly seats. If we include the Rashtriya Lok Dal (RLD), this number drops to 101.

What about the Lok Sabha? The BJP and its allies won more votes than a theoretical Mahagathbandhan in only 25 seats (24 if you include the RLD), compared with its 2014 tally of 73. The BJP would still have won the national election, but its Lok Sabha tally would have been down to (a still impressive) 236.

There are obvious caveats: it’s not clear that parties’s vote banks will seamlessly transfer to grand alliance partners. Some portion of BSP and SP voters who dislike the other party could instead vote for a third party, which could even be the BJP. Or party workers could be unenthusiastic for a candidate in their constituency from a different party. For instance, INC candidates on average won fewer votes in the 2017 UP election than did SP candidates, which political scientist Gilles Verniers sees as evidence that “SP supporters did not transfer their votes to Congress supporters to the same extent that Congress supporters did”.

On the other hand, a grand alliance that looks like a potential winner could gain votes purely on momentum. The Centre for the Study of Developing Societies’ 2014 National Election Study found strong evidence for such a bandwagon effect: 43% of voters said that they chose the party they thought was leading the race.

Either way, the compelling logic of a grand alliance in UP suggests that the parties the BJP defeated in 2017 will put in a serious effort to get one going. Whether it happens or not is the 80-seat question.